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Working Capital Management Practices Required by Small and Medium Scale Enterprises for Effective Operations in Delta State, Nigeria

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Working Capital Management Practices Required by Small and Medium Scale Enterprises for Effective Operations in Delta State, Nigeria.

ABSTRACT  

The main purpose of this study was to determine the working capital management practices required by Small and Medium Scale Enterprises (SMEs) for effective operations in Delta State, Nigeria. Six research questions were raised for the study which include; what are the sources of financing working capital required by SMEs for effective operations and six null hypotheses were formulated for the study which include; there is no significant difference between the mean responses of managers and accountants on the cash management practices required by Small and Medium Scale Enterprises for effective operations in Delta State.

A descriptive survey design was adopted for this study. The population for the study consisted of 3,627 respondents, made up of 2,012 managers and 1,615 accountants from the 2,012 Small and Medium Scale Enterprises operating in Delta State, as registered with the Ministry of Commerce and Industry. The proportionate stratified and systematic random sampling techniques were employed to select a sample size of 1,110 respondents made up of 616 managers and 494 accountants, which is 30.6% of the population.

A Working Capital Management Practices Questionnaire (WCMPQ) was used as the instrument for the study, which was face validated by five experts; two from the Department of Vocational Teacher Education, University of Nigeria Nsukka, two from the faculty of education, Delta State University, and one professional in the industry. The Cronbach Alpha Reliability Coefficient of 0.81 was obtained for the study. The instrument was administered on personal contact by the help of 18 trained research assistants. 

TABLE OF CONTENTS

Title page – – – – – – – – – i
Approval Page – – – – – – – – ii
Certification – – – – – – – – – iii
Dedication – – – – – – – – – iv
Acknowledgements – – – – – – – – v
Table of Contents – – – – – – – – vi
List of Tables – – – – – – – – xi
List of Figure- – – – – – – – – xiii
Abstract – – – – – – – – – xiv

CHAPTER 1: INTRODUCTION – – – – – 1
Background of the Study – – – – – – – 1
Statement of the Problem – – – – – – – 15
Purpose of the Study – – – – – – – 17
Significance of the Study – – – – – – – 17
Research Questions – – – – – – – – 20
Hypotheses – – – – – – – – – 21
Delimitation of the Study – – – – – – – 22

CHAPTER 11: REVIEW OF RELATED LITERATURE – – 23
Conceptual Framework – – – – – – – 24
· Sources of financing working capital required by Small and
Medium Scale Enterprises for effective operations – – 36
· Cash management practices required by Small and Medium
Scale Enterprises for effective operations – – – 47
· Account receivable management practices required by Small
and Medium Scale Enterprises for effective operations – 57
· Inventory management practices required by Small and
Medium Scale Enterprises for effective operations – – 63
· Accounts payable management practices required by Small
and Medium Scale Enterprises for effective operations – 68
· Investment management practices required by Small and
Medium Scale Enterprises for effective operations – – 72
· Factors influencing working capital management – – 77
· Challenges and Importance of working capital management- 82
· Characteristics, Problems and Roles of Small and Medium
Scale Enterprises- – – – – – – 86
Theoretical Framework – – – – – – – 93
· Conservative Approach to Working Capital Management – 94
· Aggressive Approach to Working Capital Management – 97
· Moderate Approach to Working Capital Management – 98
· Aggregate Approach to Working Capital Management – 100
Related Empirical Studies – – – – – – – 102
Summary of Reviewed Literature – – – – – – 109

CHAPTER 111: METHODOLOGY – – – – – 112
Research Design – – – – – – – – 112
Area of the Study – – – – – – – – 113
Population for the Study – – – – – – – 114
Sample and Sampling Technique – – – – – – 114
Instrument for Data Collection – – – – – – 116
Validation of the Instrument – – – – – – 117
Reliability of the Instrument – – – – – – 118
Procedure for Training the Research Assistants – – – – 119
Method of Data Collection – – – – – – – 120
Method of Data Analysis – – – – – – – 120

CHAPTER 4: PRESENTATION AND ANALYSIS OF DATA – 122
Research Question 1- – – – – – – – 122
Research Question 2- – – – – – – – 124
Research Question 3- – – – – – – – 126
Research Question 4- – – – – – – – 128
Research Question 5- – – – – – – – 130
Research Question 6- – – – – – – – 132
Hypothesis 1 – – – – – – – – – 134
Hypothesis 2 – – – – – – – – – 136
Hypothesis 3 – – – – – – – – – 137
Hypothesis 4 – – – – – – – – – 139
Hypothesis 5 – – – – – – – – – 140
Hypothesis 6 – – – – – – – – – 141
Findings – – – – – – – – – 143
Discussion of Findings – – – – – – – 148

CHAPTER 5: SUMMARY, CONCLUSION AND
RECOMMENDATIONS – – – – – 165
Re-statement of the problem – – – – – – 165
Summary of the Procedures Used – – – – – – 167
Summary of Findings – – – – – – – 168
Implications for Business Education/ SME Operators – – – 173
Conclusion – – – – – – – – 174
Recommendations – – – – – – – – 176
Suggestions for Further Studies – – – – – – 178
References – – – – – – – – – 180

INTRODUCTION  

Working capital management amongst Small and Medium Scale Enterprises (SMEs) appears to have been relatively neglected despite the fact that a high proportion of failures in businesses, is due to poor decisions concerning the working capital of enterprises (Tewolde, 2002). Management of working capital is an important component of corporate financial management because it directly affects the profitability of the firms. But what could work capital and working capital management mean?

According to Bhattacharya (2009), the concept of working capital was first evolved by Karl Marx in 1914, though in a somewhat different form, and the term he used was “variable capital”. Working capital is the capital required to finance a firm’s day-to-day operational activities. It can be defined as current (short-term) assets minus current (short-term) liabilities. Adequate working capital is vital in maintaining a firm’s liquidity.

On the other hand, working capital management is concerned with the management of a firm’s short-term assets (stocks, debtors and cash), short-term liabilities (creditors and borrowing), and short-term cash flows (Park and Gladson, 2003). McMenamin (2005) noted that the goal of working capital management is to secure the 16-optimum investment in working capital consistent with the overall financial goal of shareholder wealth maximization.

Working capital management is often denoted by its components. Hence, the Average Collection Period (ACP); the Inventory Conversion Period (ICP) and the Average Payment Period (APP) are various components of working capital management explained by Mathuwa (2009). According to him, the Average Collection Period (ACP) is the time taken to collect cash from customers. 

REFERENCES

Abor, J. and Biekpe, N (2006). Small Business Financing Initiatives in Ghana.
Problems and Perspectives in Management. 4(3), 69-77.

Agbobu, D. A (2003). Management of Small-scale and Medium-scale Business.
In E.U.Tibi & J.G. Egwuelu (eds.) Entrepreneurship in Vocational &
Technical Education. Agbor: Royal Pace Publishers.

Akabueze, B (2002). Financing small and Medium enterprises. A Seminar
paper presented at ransom centre, Lagos from 11th -14th February
2002.

Anyia, L.E. (2006). Financial impediments to the growth of Small and Medium
Scale Businesses operating in Delta State. Unpublished M.Ed. Thesis,
Department of Vocational Teacher Education, University of Nigeria,
Nsukka.

Aregbeyen, J.B.O. (1999). Constraints of Small and Medium Scale Enterprises
in sourcing funds from the Nigerian stock market. NISER Monograph
Series. 5, 1-35.

Arnold, G. (1998). Corporate Financial Management. Texas: Pitman
Publishing.

Baig, V.A. (2012). Working Capital Management: A comparative study of
different Ownerships. Retrieved from www.Indianjournals.com on 8th
of July 2012.

CSN Team.

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